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Accounting question - rent

Discussion in 'Accounting, Tax & Legal' started by Glebe, 24th Jun, 2007.

  1. Glebe

    Glebe Well-Known Member

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    Hey there,

    I have a quick accounting question.

    In March, my tenant paid me rent in advance, for a 6 month lease from March - September.

    I assume I declare the total amount as income derived this financial year, not apportion part of it for this financial year, and part of it next financial year. Is this correct?

    Thanks!
     
  2. DaveA

    DaveA Well-Known Member

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    well if you were a small business and worked under the STS (simplified tax system) you would claim it this year...

    im pretty sure its just from the derived part... but say your council rates, are you apportioning them over the financial year? if not it could be an arguement that you operate on the cash basis of accounting and declear the whole lot of income (this arguement could depend if your going up tax brackets next FY, if not probably best not to mention it and claim only part of it)

    is the basis of a good quesiton though...
     
  3. Rob G.

    Rob G. Well-Known Member

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    It depends on your contract or arrangement. If any prepaid rental might be refundable by you upon the premature departure of the tenant then you could argue that the unearned part is purely contingent and not yet derived.

    Rob
     
  4. Rob G.

    Rob G. Well-Known Member

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    What did your accountant say ?

    I cannot find a legal precedent for a cash basis taxpayer earning passive income being allowed to defer prepaid receipts !

    I suspect the ATO will insist on full assessment, and a deduction next year if you have to refund any unused rent !!!

    Cheers,

    Rob
     
  5. Glebe

    Glebe Well-Known Member

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    Hi Rob,

    I haven't put it to the accountant yet. Will soonish.

    Cheers,

    Glebe.
     
  6. coopranos

    coopranos Well-Known Member

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    I would also think that it would be fully assessable this year. As an individual you use the cash basis to prepare your return, so just as if you had prepaid interest on an investment loan, if you get prepaid income it would be assessable in the year received
     
  7. johnnyb

    johnnyb Well-Known Member

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    So how does this work with things like managed fund distributions? For example, I have just received distributions from my managed funds in early July, but I have always included them in my income for the previous financial year. And that certainly aligns with the tax statement that the managed funds send me. But from what you say if I work on a cash basis (that's a new term for me!) then wouldn't that mean I should account for it in the year the money actually turns up in my bank account?

    John.
     
  8. Rob G.

    Rob G. Well-Known Member

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    Distributions:

    Section 6-5(4) ITAA97

    You are deemed to have derived an amount of income when it is dealt with at your direction.

    The ATO will treat amounts credited to your account as derived. These being distribution statements prior to June 30th in your case.

    Similarly when a bank credits your account with interest.

    As regards cash accounting - the money must still be income. What about if you receive a refundable deposit on revenue account ? Have you derived income even though nothing has been done to earn it and you may not even perform ?

    Also cash accounting still means recognising expenses when "incurred". This can mean before paid if you are "committed", which does not necessarily mean legally liable.

    All this is critical to cash flow for people geared up to the limit just as much as for a small business owner !!!

    Cheers,

    Rob

    (General advice only - check with your Accountant !!!)
     
  9. NickM

    NickM Co-founder Staff Member

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    Glebe, Unfortunately the entire 6 mths worth of rent must be declared for 06/07.
    On the other hand - great that they have paid in advance and hopefully the $$$ will be working to save you some interest in an offset acct !
    NickM
     
  10. Glebe

    Glebe Well-Known Member

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    Thanks Rob and Nick :)